Nine reasons why India’s WTO veto shocked the world

GENEVA (Reuters) – India’s tough diplomacy blocked a landmark world trade treaty late on Thursday, despite last-ditch talks to rescue what would have been the first global trade reform since the creation of the World Trade Organization 19 years ago.

Trade diplomats in Geneva have said they are “flabbergasted”, “astonished” and “dismayed” and described India’s position as “hostage-taking” and “suicidal”. Here are nine reasons why they say India’s stance made no sense.

1. India has been a vocal backer of world trade reform. It has criticized the small clubs of countries, led by the United States and European Union, that lost patience with the slow pace of global reforms and started to discuss faster liberalizing of trade in certain areas, such as services and information technology products. India is not in any of these groups. But Thursday’s veto is likely to give them even more momentum as hope of a global trade pact, long in doubt, appears to be over.

2. India’s veto may be the beginning of the end for the WTO. Trade experts say that if the WTO’s 20-year-old rulebook does not evolve, more and more trade will be governed by new regional agreements such as the Trans-Pacific Partnership, which will have their own rules and systems of resolving disputes. That could lead to a fragmented world of separate trade blocs.

3. India’s new government was widely seen as being pro-business. And yet it blocked a deal on “trade facilitation”, a worldwide streamlining of customs rules that would cut container handling times, guarantee standard procedures for getting goods to and from their destinations and kill off vast amounts of paperwork at borders around the world. Some estimates said it would add $1 trillion to the world economy as well as 21 million jobs, 18 million of them in developing countries.

4. Nobody else was negotiating. Thursday’s meeting was simply supposed to formally adopt the final trade negotiation text into the WTO rulebook, following its agreement by ministers at a meeting in Bali last December. India’s then Trade Minister Anand Sharma hailed the Bali deal as a landmark in the history of the WTO. “We were able to arrive at a balanced outcome which secures our supreme national interest,” Sharma said at the time. India did not hint at any further objection until days before it wielded its veto, and even then it made no concrete demands until the WTO meeting to adopt the new rules was in progress.

5. India did not object to the deal it vetoed. Its objections were unconnected to trade facilitation. It blocked the trade facilitation deal to try to get what it wanted on something else: food security.

6. India had already got what it wanted on food security. At Bali, it forced a big concession from the United States and European Union, which initially strongly opposed its demands, but agreed that India could stockpile food at subsidized prices, reversing the trend of trying to reduce and remove trade-distorting food subsidies globally. The arrangement was temporary, but the WTO agreed to work towards a permanent solution within four years, by the end of 2017.

7. India’s demands reversed its previous position. India blocked the trade facilitation deal because it wanted the WTO to move to a permanent solution more quickly than the four-year timeline. But diplomats say that India was offered a two-year timeframe before Bali but it insisted on four.

8. India’s veto could put it in legal danger. As part of the Bali deal, India won a pledge that nobody would bring a trade dispute to challenge its food stockpiling program, which is widely thought to have broken the WTO rules. However, diplomats say that Bali was a “package” of 10 agreements, and the only legally binding part was trade facilitation. If that fails, the package unravels, and India may lose its protection.

9. India was isolated. Cuba, Venezuela and Bolivia voiced support, but diplomats say other big developing countries such as Russia, China and Brazil, as well as India’s neighbor Pakistan, were among the chief opponents of its veto. Poorer countries stand to lose most, WTO chief Roberto Azevedo told the WTO meeting after the deal collapsed. “They’re the ones with fewer options, who are at risk of being left behind. They’re the ones that may no longer have a seat at the table.”